Q&A:
Anshu Jain
The London-based Anshu Jain, Head of Deutsche Bank's Global Markets
division and member of the bank's Group Executive Committee, was
in Mumbai for a day recently. He spoke to BT about trends in global
debt markets, banks' appetite for coprorate risk, derivatives and
the implications for India.

The motorcycle marketing troika of Hero
Honda, Bajaj Auto and TVS Motor Company has kept sales reviving and
roaring away, recession or not.

By Swati Prasad

At
his Vasant Vihar office in Delhi, Atul Sobti, Senior Vice President
(Marketing), Hero Honda Motors Ltd, looks as smug as ever. He has
with him the findings of a recent IMRB survey on customer preferences
and market trends. This is the second such survey commissioned by
Hero Honda in the last three years. The previous one-undertaken
in 1999 -had reinforced its faith in the great Indian shift from
scooters to motorcycles. This one, distilling the opinions of over
50,000 two-wheeler owners, gives the company insights into the rural
market for motorcycles.

Hero Honda will need them, if it is to reinvigorate
its market leadership, which was born of its early fuel-economy
advantage with 4-stroke technology-something rivals Bajaj and TVS
are now wielding in the race to get even, and quite successfully
too. In the first six months of this financial year, Hero Honda's
marketshare has slipped to 45.8 per cent from 48.8 per cent in 2001-02.
The gainers? The 110-CC TVS Victor, which is smiling all the way
to the bank, and Bajaj Pulsar, which has muscled ahead with its
150-cc and 180-cc variants.

If Hero Honda was the sole market ruler till
recently, now the market looks set to be dominated by a troika that
includes Bajaj and TVS. Together, the three have an 88.5 per cent
share of the Indian motorcycle market. The competition amongst them,
of course, is intense. And that fuels growth.

BT
500
RANK12Avg. Mkt. Cap
6,255.7** For H1 2002-03 in Rs crore

Hero Honda expects to end the
year with a 30 per cent growth over the record 1.4 million units
is sol last yearB.M. Munjal, Chairman/ Hero
Honda

"Motorcycles is amongst the few categories
that is consistently growing at a healthy pace of over 30 per cent,"
says a Mumbai-based merchant banker, adding that the category hits
double-digits even in a bad year. The last financial year too was
good for motorcycles. The market grew by 37 per cent. And motorcycles
now make up 69 per cent of India's total two-wheeler sales, up from
48 per cent in 1999-2000.

Little wonder then, that the troika's worth,
in the the stockmarket's estimation (measured by market-cap), has
gone up so sharply. Hero Honda has moved up from the No. 25 spot
in last year's BT 500 annual survey to No. 12 spot this year. Bajaj
has risen by three rungs-to No. 19 this year. TVS Motor Company
has made the biggest leap, up 70 spots to land at 55 this year,
as opposed to being 125th in last year's survey.

Price-Value Equation

"So what if we're losing marketshare?"
asks Sobti. Taken alone, Hero Honda's performance remains spectacular.
It expects to end the year with a 30 per cent growth over the record
1.4 million units it sold last year. To guard its flanks against
rivals, on September 4, it launched the 133-cc Ambition, priced
at an enticing Rs 44,612 (ex-showroom, Delhi). "Ambition is
the best product Honda has brought into India till date. It not
just offers fuel-efficiency, but also power and style," says
Sobti, hoping to take on Bajaj Pulsar and TVS Fiero with the product.

That's an indication of just how finely calibrated
the market has become, and how market-oriented the players are.
Ask a honcho of any of the three two-wheeler companies why their
market cap has risen so well, and they echo the same line: "We
got the product's price-value equation right." And by that,
they mean the equation in the consumer's mind-where this market's
battleground shifted years ago. India seems ready to move on from
two-wheeled fuel-savers, and the three are working feverishly to
outgun each other on attributes such as self-image enhancement.
That, plus all the engine specs, form the 'value' part of the deal.
And price? The more attractive the better.

For aggressive pricing, there's no beating
Bajaj Auto. "Our company has the financial muscle to roll out
new products at attractive prices," says R.L. Ravichandran,
Vice President (Business Development and Marketing), Bajaj Auto
Ltd. At Rs 27,990, its Boxer at is the cheapest motorcycle available
in the market today. It is also the largest selling product after
Hero Honda's blockbuster, Splendor. Bajaj has no qualms about doling
out discounts from time to time on what is already a good price
bait. The same goes for the two variants of Pulsar; the 150-CC is
priced at Rs 45,646 (ex-showroom, Pune), the 180-cc one at Rs 53,877.

BT
500 RANK55Avg. Mkt. Cap
1,015.3** For H1 2002-03 in Rs crore

The indigenously developed Victor
has taken TVS' marketshare up from 15.5 per cent in 2001-02
to 19 per cent this fiscalVenu Srinivasan, Chairman/
TVS Motor

That was what forced Hero Honda to cut Ambition's
earlier planned Rs 46,500 tag. The company has been offering discounts
of Rs 2,000 on its earlier-launched model Passion as well, just
to prevent it being cannibalised by Ambition. If Hero Honda has
felt uneasy of late, it's because its last few launches were non-starters.
In April, it withdrew Joy-a basic motorcycle launched at Rs 40,117
(ex-showroom, Delhi) in April last year, aimed primarily at the
rural buyer. It was found to be priced too high, and Hero Honda
hopes to correct that with Dawn, a bike launched in April this year
at Rs 37,011 (ex-showroom, Delhi). As for deal-sweeteners, Hero
Honda has been running its Passport Programme, which awards loyalists
points, free gifts and tickets for movies, cricket matches and the
like. The programme now has over 700,000 members. "Our philosophy
is to be customer-centric," says Sobti, "rather than buying
market share through discounts."

However, the show this year, at least in the
first half, was stolen by TVS Motor Company, which staged a smart
recovery with its TVS Victor. Its success gives Venu Srinivasan,
the chief, a huge sense of relief-because this was the bike that
strained TVS' relations with erstwhile partner Suzuki Motor Corporation
of Japan. Launched in September 2001, Victor is indigenously developed,
and has taken TVS' marketshare up from 15.5 per cent in 2001-02
to 19 per cent this year. So enthusiastic has been the response,
that TVS claims a six-week waiting period for the bike. "We
are still in the process of ramping up our capacity," says
a spokesperson. As of now, the company sells around 34,000 units
of Victor every month. By November, it hopes to be cranking out
50,000 units per month. If that happens, Victor could overtake Boxer
for the mantle of India's second largest selling motorcycle. Of
course, analysts are waiting to see how well TVS can plug other
price-value slots to consolidate its success. "TVS has made
a comeback with the Victor, but what's important is to see what
it does next," says a competitor.

BT
500 RANK19Avg. Mkt. Cap
4,794.3** For H1 2002-03 in Rs crore

For aggressive pricing, there
is no beating Bajaj. It has no qualms about doling out discounts
on what is already a good price baitRajiv (L) & Sanjiv Bajaj,
President & VP (Finance), Bajaj Auto

Strategic Differences

Should Hero Honda worry? While both Bajaj Auto
and TVS have developed engineering strengths and have the capability
today to offer spiffy models at good prices, Hero Honda continues
to rely on its technology partner for new models and upgrades. "Hero
Honda's position is the most precarious of them all today,"
says a Mumbai-based auto analyst, hinting at the possibility of
Honda seeking a solo future in India. "With the entry of more
new and contemporary models, this is the company that will be hit
the most. But much depends on how the market leader chooses to retaliate,"
he adds.

As if the pincer attack by Bajaj and TVS is
not bad enough, Yamaha and LML are also getting into the act with
new offerings. Can the leader sustain its lead?

Hero Honda has adopted the stance that in an
expanding market, absolute growth counts for more than market share.
Also, keeping over half the market for a prolonged period would
have been unrealistic. Still, those who decry its market predominance
as a stroke (four of them, actually) of luck, are ignoring the marketing
prowess that the company has displayed (overshadowed by TVS over
the past year, though). Vendor relationships are the other thing
it is proud of. Also, Hero Honda is busy making up for lost time
in moving up the engine-power scale. Next year, Hero Honda plans
to launch a 200-cc motorcycle that would take on Bajaj Eliminator.

Expect TVS to get into rapid-launch mode soon.
It has over half a dozen products lined up over the coming year.
Bajaj, meanwhile, has cracked the market's lower end, having sold
around 6.5 lakh motorcycles last financial year. This year's target:
an ambitious 900,000 units. The company has three new products for
launch over the next 12 months. A new Caliber variant, a mobike
for collegians and a 125-cc bike from the Kawasaki stable.

All very exciting. But the big question is:
How long will the market continue to grow at the obscene pace of
over 30 per cent per annum?

Sobti expects the double-digit story to continue
so long as India's agri-sector is doing alright (half the market
is rural now). "Motorcycles are already touching 70 per cent
of two-wheeler sales. I don't think they will grow beyond 80 per
cent. So a 15 per cent growth in motorcycles should translate into
a 10 per cent growth in two-wheelers," he adds.

Ravichandran expects the customer to get more
discerning. "Only those players that offer fresh and contemporary
products at attractive prices will win," he adds. Who that
might be is anybody's guess. To some, technology has a way to go.
To others, technology is already approaching parity, so it's the
rest of the pitch that must swing the deal. But for those who dabble
in two-wheeler stocks, there is lots of action to look forward to.